Economic Outlook for Southeast Asia, China and India 2023 - Update

Impact of global uncertainty on countries will depend on their degree of export dependency

Goods exports will continue to provide a large share of the contribution of exports to GDP growth in Emerging Asia, though services exports are on the rise. For some economies in the region, export growth will remain a fundamental driver of economic expansion and a slowdown in exports will result to a direct contraction of GDP growth. An example is Thailand, which depends significantly on exports of manufactured goods and services, particularly in the tourism sector. Between Q1 2022 and Q1 2023, Thailand posted a substantial share of manufacturing exports as a percentage of GDP, while sectors such as agriculture, fishery and forestry posted marginal shares in the same period. This has also exposed the economy to heightened and lingering vulnerabilities to external shocks, including fluctuations in external demand and economic downturns in major trading partner countries.

Economies rich in natural resources are also vulnerable to commodity price volatility, which can disrupt their export earnings and overall economic stability. Export prices for commodities and goods can be highly volatile, subject to fluctuations in the dynamics of global supply and demand. For instance, energy commodity prices such as crude oil, gasoline, and coal are projected to significantly drop in 2023. Such a decline in commodity prices contributed to the dampening of commodity exports for resource-rich economies. For example, a surge in coal prices in 2022 led to a healthy current account balance in Indonesia in the latter half of the year, and this in turn strengthened its currency. In contrast, a continued decline in coal prices in 2023 will impact Indonesia’s export revenues and trade balance (Figure 2). A similar trend is observed in Malaysia as palm oil prices fluctuate.

Figure 2. Evolution of selected primary commodity prices, January 2017 to June 2023

Source: IMF, Primary Commodity Price System database.

Statlink

Meanwhile, some economies in Emerging Asia that lack export diversification and are heavily focused on specific industries or sectors are vulnerable to sector-specific risks. For example, the slump in external demand for electronics and semiconductors weighed heavily on electronics exports in the Philippines, Malaysia, and Viet Nam, given that China, the United States and the European Union are their main trading partners.

Finally, export-dependent countries also face challenges due to exchange rate-fluctuations. A notable case is Malaysia’s deepening struggle to support the ringgit exchange rate. The value of the ringgit started to slide during the first half of 2022 amid policy tightening in the United States, while the simultaneous weakening of the Chinese yuan against the dollar exacerbated the ringgit’s depreciation. During the second half of 2022, aggressive rate hikes by the Fed outweighed the impact of higher palm oil exports. By the first half of 2023 the ringgit had not recovered. This has prompted the monetary authority to intervene in the foreign exchange market to stabilise the currency.

The varied nature of export dependency among countries in Emerging Asia will translate into uneven effects. How economies cope will depend both on the diversity of their export base and on their overall economic strength. Some economies, such as those of Thailand, Singapore and Malaysia, are mainly export driven, while others, such as Indonesia and the Philippines, may have higher export shares in specific sectors or commodities but with a broader economic base. Countries will therefore need varied policy responses in combatting the impact of global uncertainty on trade.